Rules governing Gartuity

What we are going to learn in this post – 

1. Meaning Of Gratuity
2. Payment Of Gratuity Act, 1972
3. Eligibility Criteria
4. Calculation Of Gratuity
5. Forfeiture Of Gratuity

Meaning Of Gratuity (As per the important rules & regulations for payment of gratuity) – 

Whenever an employee works in an organization for a long time, it is the responsibility of the employer of the organization to support the employee during their retirement. 

The term “Gratuity“ refers to the amount of money offered by the employer to the employee as an appreciation & gratitude towards their work. In other words, we can say that gratuity is the employer gratifies ( gives pleasure & happiness) the employee by paying some money.

Payment Of Gratuity Act, 1972

The Payment Of Gratuity Act was passed in Parliament on  21 Aug 1972. It came into effect on 16 September 1972. This law is applicable for factories, oilfields, mines, ports, plantations, railway companies or, shops. Also, it is applicable all over India. This act provides a scheme for the payment of gratuity for the employees. And, Important Rules & Regulations For Payment Of Gratuity.

Section 3 of this act states that – the government has the power to appoint any officer or authority for the administration of the Payment of Gratuity Act, 1972.

Section 4 of this act states that – If an employee serves in an organization for at least 5 years, it is mandatory for the organization to pay the gratuity to the employee. 

The employee will get the gratuity during – 

1. Superannuation (Retirement from the service at fixed age) or, 
2. Retirement or, Resignation
3. Death or Disability caused by accident or disease

In case of the death of the employee, it is not mandatory that he served in the organization for a term of at least 5 years.

Eligibility Criteria

1. The employee must have to complete a certain term while working in the organization.
2. The minimum time-period for the eligibility of an employee for getting the gratuity – 

1. In case of 5 day weekly policy, any employee is eligible for the gratuity after the 4 years 194 days 
2. In case of 6 day weekly policy, any employee is eligible for the gratuity after the 4 years 240 days

      3. In case of death, it is not necessary to complete the 5 years or the given time period. The employee ( nominations ) is eligible for the gratuity after the deah while the time period doesn’t matter.

Calculation Of Gratuity 

1. The formula for the calculation of gratuity to the employees – 

Gratuity Amount = (n * b * 15) / 26;

Where , n = tenure of service worked in the company

              b = Last basic salary + basic allowance

Let’s say a person workin in a company for 10 years & the basic salary alongwith the basic allowance is 30,000. The Gratuity amount will be – 

Gratuity = (10* 30,000 * 15)/ 26 = Rs 1 Lakh 73 Thousand

2. Calculation of gratuity of the employees whose company do not lie under the Payment Of Gratuity Act, 1972

Gratuity Amount = ( n* b * 15 ) / 30;

Where , n = tenure of service worked in the company

              b = Last basic salary + basic allowance

Let’s say a person workin in a company for 10 years & the basic salary alongwith the basic allowance is 30,000. The Gratuity amount will be – 

Gratuity = (10* 30,000 * 15)/ 30 = Rs 1 Lakh 50 Thousand

Forfeiture Of Gratuity 

Section 4(6) of the Payment Of Gratuity Act, 1972 deals with the forfeiture of gratuity. 

1. The gratuity of the employee will be seized in case of willful omission or damage to the property of the organization. Depending upon the loss, the gratuity of the employee will be seized. 
2. The gratuity of the employee will be partially or completely seized in case of – Violent activities & troubling the public 
3. Similarly, the gratuity of the employee will be partially or completely seized in case of – termination of the employee due to the violent or bad behaviour of the employee